Could this simple solution solve the student loan crisis?

What if lowering student debt was as easy as sending students a letter?

Indiana University officials say borrowing by undergraduates at the school has dropped 18% since 2012. That's when the university began sending students annual letters that estimate their total loan debt and future monthly payments, as part of a push to boost their financial literacy.

Inspired by the results at IU, Indiana last year began requiring all colleges that accept state aid to send letters. Nebraska followed with a similar law this spring.

Giving students more information about their debt may help students say no to loans. But the approach carries risks. Borrowing less may make it harder for students to graduate if, for instance, they spend more time working and less time studying.

Although IU officials think financial literacy makes a difference, they haven't yet proven that the letters -- or any other initiative -- drove borrowing down.

"From a research perspective, we haven't gotten to the point where we can say it had an impact," said Victor Borden, professor of educational leadership and policy studies at IU Bloomington. He and a team of researchers are scouring data to find out exactly what worked.

Students who borrow too much

Rep. Casey Cox, the Republican author of the Indiana law, is still paying off his law school loans. He was inspired by his alma mater's efforts and his memories of how tempting it was for students to borrow as much as possible.

"At a young age, you may not really understand the consequences of that debt," he said.

Some students may not know they're borrowing at all. Researchers at the Brookings Institution, a centrist Washington, D.C., think tank, dug into federal survey data in 2014 and found that over a quarter of first-year college students with federal student loans didn't know their loans came from the federal government. About half of those students had no idea they were borrowing money to pay for college.

Students may be confused for a number of reasons, but the way student loans are packaged and disbursed doesn't help, said Andrew Kelly of the American Enterprise Institute, a conservative-leaning Washington think tank.

"It just kind of arrives, like manna from heaven," Kelly said of financial aid. A few months after a student sends a financial aid application to the federal government, an award letter arrives from their college, which may knock a chunk of money off the tuition bill or cover it entirely.

Students usually accept whatever aid colleges offer without questioning whether they could live more cheaply and borrow less.

When the news broke that borrowing at IU had fallen, students there told Bloomberg the loan letters had spurred them to avoid debt by working more, looking for scholarships, and avoiding spending on living expenses like new cellphones.

More information may help

But it's not clear that IU's letters are driving the decrease in borrowing. The letters were part of a bigger push to educate students about money that included counseling, a podcast, and a new website that offers quizzes and calculators. The university also has changed its financial aid process to make it easier for students to say no to loans.

Before all the financial literacy work began, said Phil Schuman, the university's director of financial literacy, "I don't think students actually knew they had the option to take less."

IU also has been pushing its 94,000 undergraduates to enroll in 15 credits each semester -- the pace necessary for graduation in four years. "It might not necessarily be that students are taking out less money each semester, but that they're graduating on time," Schuman said.

Across IU's seven main campuses, 42% of full-time students seeking a bachelor's degree graduate in four years, up from 38% five years ago according to the latest data. This past year, the cost of attendance -- including tuition, fees, room and board -- ran $21,412 for in-state IU students.

Other research shows that a combination of letters and counseling can change students' borrowing and academic behavior.

Montana State University students with high debt who received letters alerting them to that debt and encouraging them to seek counseling borrowed an average of one-third, or $1,360, less the next semester, according to a 2015 analysis by Montana State and Federal Reserve researchers.

The students went on to take more credits and earn better grades the following semester, the study found. The same research team found in a forthcoming study that students who received the letters were 2 percentage points more likely to switch to a major associated with higher-paying jobs.

Students who borrow too little

Student loan letters may also deter students from taking out loans they really need.

"It's just a really complex issue," said Robert Kelchen, an assistant professor at Seton Hall University who studies student debt. "The policy discussion is that students need to borrow less. And the reality is that some students may be able to borrow less, but some may need to borrow more."

Students may choose to work their way through college to graduate debt-free. But by working rather than studying, they may find it harder to graduate on time -- or to graduate at all.

Schuman said he has had to tell students that debt isn't necessarily a bad thing, particularly when they're working toward a degree that will lead to a high-paying job. He recently talked to a chemical engineering major at another institution who had about $10,000 in debt and was scared it was too much. "She was going to be fine!" he said.

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